How do labor unions affect the economy?
A. They decrease demand by opposing low prices.
B. They increase supply by keeping workers healthy.
C. They decrease supply by increasing worker wages.
D. They increase demand by ensuring ethical production.
C. They decrease supply by increasing worker wages.
Please explain why.
Labor unions have the ability to negotiate higher wages and better working conditions for their members. When workers receive higher wages, it increases their purchasing power, which can lead to increased demand for goods and services in the economy. This increased demand can have a positive impact on businesses, as they may experience higher sales and profits.
However, unions' demands for higher wages can also lead to increased costs for businesses, particularly in industries where labor costs make up a significant portion of the total expenses. To compensate for these increased costs, businesses may respond by decreasing supply, which could mean reducing the number of workers or limiting production. This can result in higher prices for consumers and reduced overall economic output.
Furthermore, labor unions may also engage in strikes and other forms of collective action to secure better wages and working conditions. These disruptions can temporarily halt or decrease production, consequently affecting the overall supply in the economy.
Therefore, while labor unions can positively impact workers' incomes and purchasing power, their demands for higher wages may ultimately result in a reduction in the supply of goods and services, thereby affecting the economy.